Actually, prescription drug coupons can make us spend more on healthcare

Mylan
CEO Heather Bresch holds a graphic as she testifies on Capitol
Hill in Washington, Wednesday, Sept. 21, 2016, before the House
Oversight Committee hearing on EpiPen price
increases.AP

When Mylan was facing a fury over the price of its EpiPen
this summer, it touted a
new savings card — increasing the assistance if offered
some consumers to $300 per two-pack.

It meant some of Mylan's customers — like those with huge
insurance co-payments — just got an extra $200 toward the $600
cost of buying EpiPens.

That's basically like a price cut, right? Well, when it
comes to drug prices, nothing is ever that simple.

Savings cards and coupons like Mylan's are presented by
drugmakers as a solution to high drug prices, but their
critics say they're actually contributing to the rise in
healthcare costs in America. They benefit a small number of
people who need them, while other, bigger parts of the
system — notably insurance companies (and their customers) — wind
up bearing the brunt of the price hikes that they're meant
to offset.

"When you first hear about coupons, you think, how could this be
bad?" Matt Schmitt, a professor of strategy at UCLA told Business
Insider. "The key realization is that the co-pay is a small
fraction of the total costs."

Schmitt is one of the authors of research recently published in
the New England Journal of Medicine that illustrates the downside
of coupons. The researchers looked at how co-pay coupons affected
spending on 23 branded drugs that started to face generic
competition between 2007 and 2010. Drugmakers facing generic
competition commonly use coupons to make their branded drugs
more appealing in comparison to the new, cheaper, alternative.

By the researcher's estimates, coupons actually led to increased
spending on those 23 drugs anywhere from $700
million to $2.7 billion in the first five years
that generic competition was out there.

Here's how that happens: Say you have a prescription you
need to pay for and you have commercial insurance.

Either because you haven't hit your deductible (the amount of
money you're on the hook for paying before your insurance starts
picking up most of the tab), or because there's a high co-pay
assigned to the drug, you're stuck paying $50 for a month's
supply.

If the branded drug has a co-pay assistance program, it might
cover $40 of that co-pay, so all you have to pay is $10 to the
pharmacy. This does have its benefits: if you only have to pay
$10, you're likely going to comply and take the medication,
instead of leaving it at the pharmacy counter.

But the insurer still has to pay what it would if the drug
had cost the patient $50.

So if the reason you had a $50 co-pay was that your
insurer is trying to encourage you to choose the generic
version, basically that didn't work and the insurer is
left paying for the more expensive — yet identical — drug.

Insurers aren't going to eat that cost. They'll just pass it back
on in the form of higher premiums, or larger deductibles.

"Insurers use co-pays to steer customers to different drugs,"
Schmitt said. "That ability to steer allows them to negotiate
good prices for the drug."

Not everyone allows coupons these coupons to be used. Medicare,
for example, doesn't allow them. Massachusetts banned
them in instances where the branded drug has a generic
alternative.

The research didn't cover other scenarios, like when a drug
has a co-pay savings card but generic competition isn't out there
yet. That's the gray area the EpiPen falls slightly in: there are
other options that are cheaper, but there's no
direct generic version out yet.

In these less-straightforward cases, there's a possibility that a
co-pay card could help that patient adhere to the medication, but
Schmitt said, it's an important area to try and understand
better. That's what the researchers are going to work
on next.